Vantage Point: Patent Reform Threatens U.S. Competitiveness

William Hawkins Senior Fellow for National Security Studies U.S. Business and Industry Council Washington, D.C.

Edited by Kenneth Korane

Congress is pushing a bill that could cripple most of America’s smaller inventors and even larger industrial firms that depend on patents. The bill could also weaken the prominent role our nation’s universities play in technology development. The House passed its version of patent reform in Sept., and action is now pending in the Senate (S.1145).

Throughout the legislative process, there has been a bias against manufacturers. Not a single manufacturing firm was invited to give testimony, even though technological innovation and industrial advancement are closely intertwined. Indeed, manufacturers undertake 60 to 70% of the nation’s R&D and hold 60% of its patents.

Lawyers, bankers, and leading high-tech firms like Microsoft, Palm, and Intel have dominated the hearings. Yet, smaller enterprises drive true innovation. Independent inventors, small companies, universities, and nonprofit research groups make about one third of all patent applications. These efforts are usually the most important for leading-edge scientific advancement.

The bill is meant to shift the legal balance. Many large IT companies want to make challenges to patents easier, and to curb the power of patent holders protecting their rights. It would even allow challenges after patents are granted. This would deny patent holders clear ownership and inhibit their ability to commercialize products or attract venture capital. The legal costs associated with post grant challenges favor deep-pocket corporations over smaller firms and inventors, and raise barriers to independent innovation.

Pending legislation would also reduce damage payments for infringement and make it harder for courts to levy punitive damages. The idea seems to be to define away damages, making infringement  the stealing of someone else’s idea  a winning business strategy.

Perhaps the direst threat is mandatory publication of applications before a patent is granted. Currently, applications are published after 18 month, but Americans can opt-out of this requirement if not filing for foreign patents. The new bill eliminates opt-out provisions. Considering it takes an average of 33 months to receive a patent, publishing the invention’s details after only 18 months is a windfall for pirates, among which the Chinese are the most numerous.

S.1145’s assault on intellectual property rights has created wide-ranging opposition among high-tech firms, independent inventors, university research centers, large manufacturers including 3M, Caterpillar, and General Electric, many labor unions, and even the patent examiners association. These groups believe that if the law reduces the rewards  but not the risks  of high-tech research, less work will be done and fewer new ideas will be forthcoming.

Today, Americans are fighting a global trade war and innovation plays the dominant role in economic growth, increased productivity, and new products. It seems a particularly bad time to weaken the protection of intellectual property in the name of “reform” or shift the legal scales against inventors. The future of American innovation hangs in the balance.